Security is one of blockchain’s most lauded benefits. Large banks, governments and organisations recognise this benefit and are currently pouring large amounts of money into their R&D departments so they can capitalise on the technology. In the US alone, spending on blockchain technology is projected to reach $4.2B by 2020.
What makes blockchain technology secure?
A blockchain is a shared, decentralised ledger of peer-to-peer transactions that are validated by a network of nodes employing an accuracy-rewarding cryptographic protocol.
Decentralisation
Instead of holding all the data in a central location, blockchain is fully decentralised and replicated across thousands of nodes, which renders them virtually unhackable.
A successful hacker would have to infiltrate countless servers to modify the data to their benefit. The logistical implications of such an attack mean that the costs far outweigh the potentially massive benefits. This decentralisation is inherent to the whole system which means there is no single point of failure.
Accuracy
Before a new block is added to the blockchain, the validity of the data it contains is assessed by a network protocol that rewards the first node to solve a complex mathematical problem. Once a majority of the machines reaches the same solution, the information is validated, and the block becomes a part of the blockchain.
Any inaccurate data would fail to meet this strict standard and the node that submitted it would be excluded from the network, guaranteeing its long-term security.
Immutability
When a new block is added to the ledger, it becomes part of the blockchain and can no longer be changed. This immutability is a result of consensus.
This ensures the information is trustworthy since it is impossible to falsify or manipulate, thereby rendering the whole system and the assets that depend on it credible and secure.
Security limitations of blockchain technology
As disruptive as blockchain technology could be, it would be dishonest to claim it is flawless. It does have its limitations and recognising this is the first step in coming up with a solution.
Susceptible to human mistakes and intervention
If a person makes a mistake when entering the data, that mistake is immortalised in the blockchain and can’t be undone. Although it relies on the empowerment of data, blockchain is still a human construct, and, as such, it is vulnerable to the manipulation of its technical features to serve different purposes.
This is only speculation as to what may happen in the future. For example, a heated community debate about governance models can be subverted to favour an option which may compromise the project in the long-term. This limitation should serve as a reminder that any security system is only as strong as its weakest link. In this case, we are the weakest link.
Vulnerable to ‘51% attacks’
The mysterious creator of Bitcoin, Satoshi Nakamoto, pointed out the only known threat to the integrity of blockchains. This threat is known as a ‘51% attack‘. If 51% of the network nodes validate a discrepancy, that discrepancy becomes the truth.
This type of attack can happen if a majority of these machines are corrupted by a malicious outside force looking to damage the blockchain from within. While these attacks undoubtedly pose a threat, they would still be complex and complicated to pull off. Blockchain communities actively assess their networks to ensure that no single party holds enough influence over it.
The future of blockchain security
It is important to remember that blockchain technology is still in its infancy, and plenty of its potential uses remain undiscovered or dependent on other developments. Limitations with blockchain technology do exist but developers are working to solve them.
What we can already witness from the existing range of blockchain applications is that security is an inherent benefit brought by this technology. We can’t predict the future with any serious degree of certainty, but our society is increasingly aware of the transformative potential of blockchain. Multi-national corporations, banks, law firms, governments, military and universities are pooling their resources to work out how the blockchain can secure information about our money, assets and identities.
What next?
Interested in learning more about blockchain, how it works and the benefits it delivers to different industries? Visit our dedicated guide series!
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.